Taj Mahal Hotel vs United India Insurance Company Ltd. & Ors.

Contract Act, 1872 – ss.151, 152 – Standard of care to be taken by the bailee (hotel) for the vehicles parked within its premises – Discussed – Consumer Protection.

Contract Act, 1872 – ss.148, 149 – ‘Delivery’ under – When – Held: In a scenario where possession of the vehicle is handed over to hotel employee for valet parking, it can be said that ‘delivery’ of the vehicle has been made for the purposes of s.148 and 149 – Consequently, a relationship of bailment is created – Parking token so handed over to the bailor is evidence of a contract, by which the bailee (hotel) undertakes to park the car and return it in a suitable condition when the vehicle owner so directs – Consumer Protection.

Contract Act, 1872 – ss.151, 152 – Vehicles of guests parked under the valet parking of the hotels – Loss/theft of – Distinction between gratuitous bailee and bailee for reward – If any – Held: ss.151 and 152 do not distinguish between a gratuitous bailee and a bailee for reward – It is irrelevant as to how much parking fee was paid by the consumer, or whether any parking fee was paid at all, as the duty of care required to be taken by the hotel will be the same in all circumstances – However, this is not a strict liability standard insofar as s.152 excludes the liability of a bailee for loss or damage of the bailed goods if he is able to show that he fulfilled the standard of reasonable care u/s.151 – Whether or not such standard of reasonable care was fulfilled will depend upon the facts and circumstances of each case – Consumer Protection. Words & Phrases – ‘in the absence of any special contract’ in s.152, 1872 Act – Meaning of – Held: Though courts may have construed the phrase ‘in the absence of any special contract’ in s.152 to mean that a bailee can reduce his liability u/s.151 but, such an interpretation is incorrect – Words ‘in the absence of any special contract’ in s.152 clearly indicate that it is open to the bailee to accept a higher standard of liability than s.151 under contract, and not otherwise – However, this does not mean that the hotel would be liable in all scenarios or that it cannot impose any exemption clause through a contract – Contract Act, 1872 – ss.151, 152 – Interpretation of Statutes – Consumer Protection. Dismissing the appeal, the Court

HELD: 1.1 COMPLAINT FILED BY INSURER AS A

SUBROGEE

It has been settled by a Constitution Bench of this Court in Economic Transport Organisation that even though a consumer complaint filed by an insurer in its own name is not maintainable, a complaint filed by the insurer acting as a subrogee is maintainable if it is filed by: i) the insurer in the name of the assured, wherein the insurer acts as the attorney holder of the assured; or ii) the insurer and the assured as co-complainants. In the instant case, respondent no. 2 (actual consumer/assured) had executed a POA and a letter of subrogation in favour of respondent no. 1 (car insurer). Consequently, the complaint before the state commission was filed by respondent nos.1 and

2 as co-complainants. Hence, both the conditions are squarely applicable to this case and the complaint is maintainable. [Paras 8, 9] [865-E-G]

Economic Transport Organisation v. Charan Spinning Mills (Pvt.) Ltd. (2010) 4 SCC 114 – followed. Oberoi Forwarding Agency v. New India Assurance Company Limited [2000] 1 SCR 554 ; B. Dutta, Senior Advocate v. Management of State (2010) 1 CPC 319 ; Klaus Mittelbachert v. East India Hotels Ltd. AIR 1997 Del 201 ; Hotel Hyatt Regency v. Atul Virmani III (2008) CPJ 281 (NC) – referred to.

1.2 LIABILITY OF HOTELS FOR THEFT OR LOSS OF

VEHICLES OF GUESTS

The imposition of strict liability for loss or damage to vehicles of guests is overly burdensome in today’s context. The strict liability rule had emerged in an age and time where travel was rare and tourism was virtually non-existent, thereby prompting Courts to hold hotel owners liable so as to protect the interests of the guests. However, in today’s context of economies with well-established hotel industries and mandatory insurance of vehicles owned by guests, there has been a trend across jurisdictions of moving away from the strict liability of innkeepers in respect of vehicles of guests. Persons visiting hotels and parking their cars in their premises or under valet parking, cannot be left at the mercy of hotel owners. It is essential to balance the interests of hotel owners and guests, and it is found that the prima facie liability rule strikes this balance without placing undue burden on either of the parties. The fact that guests are already protected by virtue of insurance of their vehicles tips the scale in favour of adopting a relatively moderate approach. Thus, given that the prima facie liability rule is premised on the existence of a bailment relationship, in cases where such a relationship is found to exist between the hotel and its guest, the rule should be applied in respect of vehicles so bailed to the hotel. This is also the approach that has found mention under Indian law. The general rule has been that in a contract of bailment, if goods are lost or damaged while in the possession of the bailee, he will be liable. The burden of proof will be on the bailee to show that he took a reasonable degree of care in respect of the bailed goods (N.R. Srinivasa Iyer v. New India Assurance Co. Ltd.). This is because there is an implicit expectation between the hotel and the guest when a vehicle is handed over for valet parking that the vehicle would be taken reasonable care of, and returned in a proper condition. Thus, the failure to return the vehicle strikes at the root of the bailment relationship and gives rise to a prima facie case of negligence against the hotel. The strict liability rule under common law is a relic of the past and should not be given effect in the Indian context. To this extent, the National Commission erred in adopting the common law rule without justifying its choice or without noting the well-recognised exception in respect of the vehicles of guests. [Paras 15.2, 16] [872-A-B-F-H; 873-A-C]

N.R. Srinivasa Iyer v. New India Assurance Co. Ltd. AIR (1983) SC 899 : [1983] 3 SCR 479 – relied on.

1.3 EXISTENCE OF BAILMENT RELATIONSHIP

The existence of a contract of bailment often turns on the degree of control exercised by the prospective bailee over the property or good in question. In other words, the crucial point to be considered is whether the custody or possession of the vehicle is purposefully handed over to the hotel (as is the case with valet parking) or whether the complainant is merely allowed to park his car in a parking space or facility. While the laws of bailment apply in the former case, the latter is only a licensorlicensee relationship where laws of bailment or the prima facie liability rule cannot be applied. In a situation where the hotel actively undertakes to park the vehicle for the owner, keep it in safe custody and return it upon presentation of a parking slip in a manner such that the parking of the vehicle is beyond the control of the owner, a contract of bailment exists. Thus, the hotel would be liable as a bailee for returning the vehicle in the condition in which it was delivered. In a scenario where possession of the vehicle is handed over to a hotel employee for valet parking, it can be said that ‘delivery’ of the vehicle has been made for the purposes of Section 148 and 149. Consequently, a relationship of bailment is created. The parking token so handed over to the bailor is evidence of a contract, by which the bailee (hotel) undertakes to park the car and return it in a suitable condition when the vehicle owner so directs. A contract of bailment under Section 148 may be gratuitous. In any case, it is common knowledge that ‘complimentary’ services provided by 5-star hotels are not actually free-of-cost. These services are covered by the exorbitant rates charged for renting of rooms, food, entry fee to lounges and clubs, and so on. It cannot be denied that valet parking service, even if offered gratuitously, benefits the hotel. A hotel holding itself out to the public as providing such a service seeks to pitch it as a value addition to the experience of a guest and incentives greater foot fall. Therefore, for such cases, there exists an implied consideration for the contract of bailment created by virtue of the valet parking service. Respondent No. 2 had given up possession of his car by handing it over to the valet. Thus, the Appellant-hotel cannot refute the existence of bailment by contending that its valet parking service was purely complimentary in nature and that the consumer (bailor) had not paid for the same. The existence of a bailment relationship is clear. [Paras 18, 18.3, 18.7 and 18.8] [873-E-F; 874-E-F; 875B-C; 878-C-H]

Bombay Brazzerie v. Mulchand Agarwal (2002)

NCDRC 42 – disapproved.

Commissioner, Corporation of Madras v. S. Alagraj I (1996) CPJ 54 (NC) ; Rohini Group of Theatres v. V. Gopalakrishnan II (1996) CPJ 1 (NC) ; New India Assurance Co. Ltd. v. Delhi Development Authority AIR 1991 Del 298 – referred to.

1.4 THE REQUIRED DEGREE OF

BAILMENT

CARE UNDER

Given the existence of a bailment relationship, the failure of the Appellant to deliver the car to Respondent No. 2 (carowner), raises a prima facie case of negligence against it. Thus, the burden of proof is on the hotel (bailee) to show that efforts were undertaken by it to take reasonable care of the vehicle bailed, and that the theft did not occur due to its neglect or misconduct. Under Sections 151 and 152, the bailee has a duty to keep its premises in a condition of safety that would be reasonable to prevent loss, damage, or theft of the goods of its guests. With respect to 5-star hotels specifically, the responsibility to take such measures is higher. Sections 151 and

152 of the Contract Act do not distinguish between a gratuitous bailee and a bailee for reward. It is irrelevant as to how much parking fee was paid by the consumer, or whether any parking fee was paid at all, as the duty of care required to be taken by the hotel will be the same in all circumstances. However, this is not a strict liability standard insofar as Section 152 excludes the liability of a bailee for loss or damage of the bailed goods if he is able to show that he fulfilled the standard of reasonable care under Section 151. Whether or not such standard of reasonable care was fulfilled will depend upon the facts and circumstances of each case. [Para 19, 20.1-20.3] [879-B-E-F; 880-C; 881-B-C]

1.5 The records show that the car of Respondent No.2 was stolen when three young boys who had parked their car in the Appellant-hotel came out of the hotel, asked the valet driver to bring their car to the porch, and one of them then picked up the keys of the car of Respondent No.2 from the desk, went to the parking area and stole the car. Entire case of the appellant has been premised on the exclusion clause in the notice, and not on the absence of negligent conduct on its part. In fact, there has been an admission of the fact that one of the three young boys who had visited the hotel stole the car of Respondent No. 2, while its keys were under the watch of the valet driver. The manner in which the car was stolen manifests that no steps had been taken by the Appellant-hotel to ensure that car keys were kept outside the reach of outsiders or that the cars were parked in a safe location with adequate barriers to verify their owners. In the absence of such measures, the Appellant failed to discharge its burden of disproving the prima facie case of negligence against it. Thus, the theft of the car of Respondent No.2 was a result of the negligence of the Appellant-hotel. [Para 21] [881-D-H; 882-A]

Sheik Mahamad Ravuther v. The British Indian Steam Navigation Co. Ltd. (1909) ILR 32 Mad 95 ; Kariadan Kumber v. British India Steam Navigation (1913) 38 Mad. 941 ; Hollandia Pinmen v. H. Oppenheiner AIR 1924 Rang 356 ; Bombay Steam Navigation Ltd v. Vasudev Baburao Kamat ILR (1928) 52 Bom 37 ;

Lakhaji Dollaji & Co. v. Boorugu Mahadeo Rajanna

41 Bom LR 6 ; Indian Air Lines Corporation v. Jothaji Maniram AIR 1959 Mad 285 ; State Bank of India v. M/s Quality Bread Factory, Batala AIR 1983 P&H

244 ; Central Bank of India v. M/s Grains & Gunny Agencies AIR 1989 MP 28 ; Nath Bros. Exim

International Ltd. v. Best Roadways Ltd. (2000) 4 SCC

553 : [2000] 2 SCR 538 – referred to.

2.1 EXCLUDING LIABILITY BY CONTRACT

Upon perusal of the relevant decisions on this point, it is found that White C.J. and Wallis J’s opinion in Sheik Mahamad was peculiar to the facts of that case. With respect to liability for vehicles bailed to a hotel as is the case with valet parking, Sankaran Nair J.’s opinion in Sheik Mahamad should be adopted. Given that such vehicles would normally be parked in the hotel’s own parking facility, or in the vicinity of the hotel, the hotel staff is well-placed to ensure safe custody of the vehicle and monitor its condition. Though valet parking may be offered as an optional complimentary service in some instances, more often than not, guests visiting the hotel have no other option but to entrust their vehicles to the hotel’s custody, especially given the congested urban areas where such hotels are located. The guest has an implicit expectation that the repute and standards of 5-star hotels would entail adequate safety of the vehicles handed over for valet parking. Thus, in such a scenario, if the hotel is allowed to exclude its liability for negligence by way of a contract, the standard of care imposed under Section 151 will become illusory and virtually redundant, rendering consumers vulnerable without any remedy. The standard of care required to be taken by the hotel as a bailee under Section 151 is sacrosanct and cannot be contracted out of. Though courts may have construed the phrase ‘in the absence of any special contract’ in Section 152 to mean that a bailee can reduce his liability under Section 151, such an interpretation is incorrect. The words ‘in the absence of any special contract’ in Section 152 clearly indicate that it is open to the bailee to accept a higher standard of liability than Section

151 under contract, and not otherwise. However, this does not mean that the hotel would be liable in all scenarios or that it cannot impose any exemption clause through a contract. There may be situations where the loss or damage may be caused due to the negligence of third parties, the bailor’s own negligence or unforeseen circumstances beyond the bailee’s control, which could not have been foreseen with ordinary diligence. This would include, for example, acts of God, seizure of the vehicle under legal process or by public authorities, damage due to natural causes such as unforeseen weather conditions, presence of inherent defects in the vehicle, acts of loss or damage caused by the guest’s own negligence and so on. A joint reading of Sections 151 and 152 shows that, in such cases, the Contract Act intended that the bailee should not be liable for the loss or damage of the goods bailed on all occasions. Section 152 expressly states that the bailee, in the absence of any special contract, is not responsible for loss or damage of the thing bailed, if he is able to prove that he has taken the amount of care required under Section 151. Therefore, hotels are at liberty to print clear contractual disclaimers notifying their guests that their liability is excluded for loss or damage to vehicles taken for valet parking which are occasioned by acts of a third party, contributory negligence or by force majeure events. However, this would always be subject to the hotel discharging its initial burden of proving that it fulfilled the standard of care imposed under Section 151 of the Contract Act. Where the hotel or its servants have actively connived against or acted negligently in safeguarding the vehicles delivered for valet parking, ‘owner’s risk’ clauses in the parking token will not come to their rescue. Where a valet or servant has been handed custody of the vehicle, and such a servant takes away the vehicle without authority, the hotel will be liable. This is because there will still be a prima facie assumption that the hotel has exercised laxity in supervising the actions of its servants. However, the hotel will not liable where, in spite of due diligence, a servant or employee who was not entrusted with custody of the vehicle takes it without authority, as this would be similar to a case of theft by a third-party. The above observations are limited to the issue for consideration, that is, the liability of hotels as bailees for vehicles handed over to them for valet parking. Whether the rule as laid down by White C.J. and Wallis J. in Sheik Mahamad, and followed in subsequent High Court decisions, holds good in other kinds of contracts is not being commented upon, and it is desisted from commenting further on this aspect. In a case of theft of a vehicle given for valet parking, the hotel cannot claim exemption from liability by arguing it was due to acts of third parties beyond their control, or that they are protected by an ‘owner’s risk’ clause, prior to fulfilling its burden as required under Section 151 and 152. While a case of a robbery by force is visibly beyond a bailee’s control, in cases of private stealth, or simple theft where no force or violence is involved, the bailee still has the prima facie burden of explaining that the loss or disappearance of the goods in his custody is not attributable to his neglect or want of care. This is because no one apart from the bailee is in a position to explain the fate of the goods. In the instant case, given the finding that the theft of the car of Respondent No.2 was a result of the negligence of the Appellant-hotel, the exemption clause on the parking tag will not exclude the Appellant’s liability. Hence, the argument of the Appellanthotel on this count fails. In conclusion: (i) The hotel-owner cannot contract out of liability for its negligence or that of its servants in respect of a vehicle of its guest in any circumstance. Once possession of the vehicle is handed to the hotel staff or valet, there is an implied contractual obligation to return the vehicle in a safe condition upon the direction of the owner. (ii) Even where there is a general or specific exemption clause, there remains a prima facie burden of proof on the hotel to explain that any loss or damage caused to the vehicles parked was not on account of its negligence or want of care per Sections 151 and 152 of the Contract Act. It is only after this burden of proof is discharged that the exemption clause can come into force. The burden of proving that such loss or damage was covered by the exemption clause will also be on the hotel. [Paras 28-30] [889D-H; 890-A-H; 891-A-H; 892-A-B]

2.2 The consumer complaint in consideration is maintainable as it was filed by the insurer as a subrogee, along with the original owner as a co-complainant. Further, strict liability cannot be imposed on hotel owners in respect of loss of or damage to vehicles of their guests. Instead, the rule of prima facie negligence should be adopted. The Appellant has not explained why its failure to return the vehicle to Respondent No. 2 was not on account of fault or negligence on its part. Thus, liability should be affixed on the Appellant-hotel due to want of the requisite care towards the car bailed to it. [Para 31] [892C-D] Law Commission of India, Contract Act, 1872 (Law Com No 13, 1958) para 125 ; Pollock and Mulla, The Indian Contract and Specific Relief Acts (Nilima Bhadbhade ed, updated 14th edn, 2013) 1505, 1522; Pollock and Mulla (n 32) 1505 – referred to.

Dickerson v. Rogers 4 Humph 179 (1843) ; Aria v. Bridge House Hotel (Staines) Ltd. (1927) 137 LT 299; Williams v. Linnitt, 1 ALL E.R. 2 78 (Eng. 1951) ; Laird v. Eichold 10 Ind. 212 (1858) ; Ashby v. Tolhurst [1937]

2 K.B. 242 ; Tinsley v. Dudley [1951] 2 K.B. 19 ; Port Swettenham Authority v. T.W. Wu & Co. [1979] A.C. 580 ; Price & Co v. Union Lighterage Company (1903) 1 K.B. 750 – referred to.

John E. H. Sherry, The Laws of Innkeepers: For Hotels, Motels, and Restaurants (3 rd edn, Cornell University Press 1993) 415-417 ; Joseph James Hemphling, ‘Innkeeper’s Liability at Common Law and Under the Statutes’ (1929) 4(7) Notre Dame Law Review 421, 422; Wayne Quinton, ‘Liability for Automobile Parking at Hotels: The Tennessee Case Abstract’ (1992) 16(1) Hospitality Research Journal 109, 110 ; Sylvan H. Hirsch, ‘Limited Liability of Innkeepers Under Statutory Regulations’ (1928) 76 University of Pennsylvania Law Review 272 ; John H. Sherry, ‘The Innkeeper’s Liability for Automobiles and Their Contents’ (Aug 1964) <https://doi.org/10.1177/001088046400500202 > accessed 2

November 2019 ; Park-O-Tell Co. v. Roskamp, 203 Okla. 493, 223, P.2d 375 (1950) ; Abercrombie v. Edwards, 62 Okla. 54, 161 P. 1084 (Okla. 1916) ; L.J. Blom-Cooper, ‘Second Report of the Law Reform Committee on the Law of Innkeepers’ Liabilities for Property of Travellers, Guests, and Residents (May 1954)’ (Jul 1955) 18(4) The Modern Law Review 374,

376 ; Hotel Proprietors Act 1956, s 2(2) (United Kingdom); Innkeepers Act 1968, s 6(a) (New South Wales) ; Carriers and Innkeepers Act 1958, s 29(a) (Victoria); Annex to the Convention on the Liability of Hotel-Keepers concerning the Property of their Guests, Article 7 (Paris, 1962) – referred to.